|Title: ||The Evolution of Portfolio Rules and the Capital Asset Pricing Model|
|Authors: ||Sciubba, Emanuela|
|Issue Date: ||16-Jun-2004|
|Abstract: ||The aim of this paper is to test the performance of the standard version of CAPM in an evolutionary framework. We imagine a heterogeneous population of long-lived agents who invest their wealth according to differential porfolio rules and ask what is the fate of those who happen to behave as prescribed by CAPM. In a complete securities market with aggregate uncertainty, it is shown that traders who either believe' in CAPM and use it as a rule of thumb, or are endowed with genuine mean-variance preferences, under some very weak conditions, vanish in the long run. A sufficient condition to drive CAPM or mean-variance traders' wealth shares to zero is shown to be that an investor endowed with a logarithmic utility function enters the market. Finally, the robustness of the results is checked, allowing for different kinds of heterogeneity among traders.|
|Appears in Collections:||Cambridge Working Papers in Economics|
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